intersuisse rates cue as a buy

http://www.intersuisse.com.au/Files/resources/cue%20energy%20-%20intersuisse%20-%2022%20july%202010.pdf

Cue Energy is a Melbourne based oil and gas producer and explorer with
permit interests in Australia, New Zealand, Papua New Guinea and Indonesia.
In the 12 months to end March 2010, CUE earned a total of $40.9m in revenue
from the sale of 458,600 barrels of oil and 1.1 TCF gas from its fields in New
Zealand, Indonesia and Papua New Guinea.
Cues main exploration effort is focused on its offshore permits in the Carnarvon
Basin that are located within a 50 km radius of the NWS production hub and the
major gas discoveries at Pluto and Wheatstone.
Carnarvon Basin including WA 389P (CUE 35%) and WA 360P (CUE 15%)
In the Carnarvon Basin, Cue holds interests in 5 contiguous permits covering a
total area of 7,476 km2. In October 2007, Cue farmed out 3 contiguous permits
to MEO Australia (refer MEO report 21/7/10). In 2009, MEO drilled the Zeus 1
well in WA 361P. While the well failed to encounter any hydrocarbons, the
geological information it provided encouraged MEO to purchase an additional
15% interest in the permit.
Following the extension of farmin obligations in WA 360P, MEO acquired
additional 3D seismic data over the Artemis prospect and commenced the
process to attract a farm in partner to fund the cost of drilling the commitment
well. As no farmout agreement was executed before the end of 2009, MEO
committed to drilling the well to satisfy its farm in obligations and retain its
interest in the permit. In April, MEO announced that a farmout agreement was
signed with Petrobras, the Brazilian State petroleum company. While the terms
of that farmout do not extend to the CUE interest, CUE will be carried for the
cost of the Artemis 1 well, expected to commence in November 2010.
Interpretation of available 3D seismic data together with geological data
obtained from the Zeus well have been used by MEO to calculate an unrisked
mean gas resource of approximately 12 TCF on a 100% basis for the Artemis
prospect.
In April 2009, CUE announced that it had farmed out a 65% interest in WA
389P to Woodside on the following terms:
Refund of back costs of US$5m
Pay 100% of the cost of 1.440 km2 of new 3D seismic data
Pay 100% of the cost of reprocessing existing 3D data and merging these
data with the new survey
Pay 100% of the cost of drilling the first exploration well in the permit.
The farmin agreement was signed in July and Woodside has commenced the
tender process for the acquisition of the new 3D seismic survey. The focus of
exploration is the identified Caterina prospect that, together with other mapped
prospects, has the potential to contain multi TCF volumes of gas.
Taranaki Basin including PMP 38160 (CUE 5%) and PEP 51313 (CUE 20%)
PMP 38160 contains the Maari oil field that was brought on stream in February
2009 and the Manaia oil field that has been drilled from the Maari platform, but
is yet to be completed for production. While the Maari platform has a
production capacity of 35,000 bopd, mechanical problems with a number of the
wells has kept production at around 20,000 bopd. These problems are
currently being addressed by the operator. In the meantime, CUE and its JV
partners are continuing the exploration of PEP 51313 that contains a number of
mapped oil prospects containing an estimated resource of several hundred
million barrels. As part of the ongoing exploration, the JV acquired
approximately 200 km2 of 3D and 80 km of 2D seismic data.
Analysis
CUE is a producing oil company with strong operating cash flow
capability in excess of $20m per annum that is set to increase once...the full benefits of new production from New Zealand
and Indonesia are realised. In addition, CUE has sold
its interest in PRL 8 in PNG for $5.1 mn and is
negotiating the sale of its interest in SE Gobe gas
production to the PNG LNG project. Apart from its
production upside, CUE will be carried through the
drilling of 2 high impact explorations wells, Artemis 1
in 2010 and Caterina 1 in 2011. Success in any one
of these wells, together with the potential to discover
more oil in New Zealand provides the basis for a
significant appreciation in the share price of CUE, a
long neglected oil industry participant. We rate CUE
as a BUY.